As part of our project "The State of Small Business," Business News Daily plans to report on the small business environment in every state in America. In this installment, we asked a few of New Hampshire's more than 130,000 small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.
Despite somewhat slow economic growth and an overall small market, New Hampshire remains a good state for small businesses. With no personal income or sales taxes and a proximity to greater New England, the Granite State offers solid opportunities to the aspiring entrepreneur. Moreover, the average New Hampshire resident makes more each year than the average American.
Of course, there are some caveats. Less-than-stellar economic growth means commerce isn't as strong in New Hampshire as it is other places in the U.S. An equally high cost of living cancels out the heightened per capita personal income, and the labor market is particularly competitive for skilled labor. But overall, the small business owners we interviewed said they are happy to live and work in New Hampshire and that they have an optimistic outlook.
One of the most attractive aspects of doing business in New Hampshire is the low tax burden. While the state corporate income tax is relatively high, at 8.5 percent, there are no personal income or sales taxes. The state does levy a 5 percent rate on interest and dividends, but all other personal income is untaxed, meaning pass-through entities like LLCs retain much more of their income.
According to the Tax Foundation, New Hampshire boasted the sixth-lowest tax burden in the nation in 2016. However, the state imposes significant unemployment, corporate income and property taxes to compensate for the lack of sales and personal income taxes.
"Business taxes are modest, and there is no personal income tax or general sales tax," Mike Lawrence, controller at New Hampshire-based furniture company Yogibo, said. "Property taxes can be higher than [in] other states due to education funding and the lack of a sales tax."
Above-average per capita personal income
The average New Hampshire resident enjoys an annual income that's 17 percent higher than the national average. Usually, a higher per capita personal income (PCPI) means more disposable income and, in turn, heightened consumer spending. In New Hampshire, however, a significant cost of living might cancel out the benefits of a high PCPI.
Still, the heightened income levels are good news for New Hampshire businesses, especially when considered alongside the low tax burden. While cost of living is high, competent entrepreneurs can expect to manage normally with the added relief of a mild state-tax policy.
Proximity to large markets
New Hampshire has just 1.3 million residents, but businesses operating in the state can access the vast market of greater New England. Businesses willing to engage in commerce across state lines will find plenty of potential customers and clients located within a stone's throw of New Hampshire.
"Southern New Hampshire provides the benefits of being nearby [to] the Boston market [while maintaining] the small-town characteristics of New Hampshire," Phil Mastroianni, founder of New Hampshire-based distillery Fabrizia Spirits, said. "It allows entrepreneurs to be seen in the crowd and establish their own identity at the local level."
Modest economic growth
New Hampshire emerged from the 2008 economic crisis in good shape, with a growth rate of 2.4 percent in 2010. Unfortunately, the state's economy hasn't seen such robust growth since then. In the subsequent years, New Hampshire repeatedly experienced annual growth rates of below 1 percent; even in the years when growth was more significant, the state's economy failed to reach even 2 percent growth again. But the state's entrepreneurs commonly said business was going well anyway.
"[The climate is] very optimistic," Mastroianni said. "Southern New Hampshire is a great place to start and operate a business. There are many other business owners in the area and a general willingness to work, collaborate and see small businesses do well. "
While the slow economic growth isn't putting much of a damper on the mood in New Hampshire, the economy's sluggishness could be explained by the state's reliance on support-focused industries. The two largest industries in New Hampshire in 2016, according to the U.S. Bureau of Economic Analysis (BEA), were finance, insurance, real estate, rental and leasing, and professional services. This means that the two largest industries in the state are dependent on other businesses for their success. Any economic downturn, then, is bound to ripple through the whole economy.
Above average cost of living
According to Sperling's Best Places, New Hampshire's overall cost of living is 17 percent higher than the average U.S. state. Commercial real estate in southern New Hampshire is especially pricey, Lawrence said.
"Residential and commercial real estate costs vary depending on the region of New Hampshire you reside in," Lawrence said, "but southern New Hampshire real estate pricing is fairly [high] due to the population centers and the proximity to Massachusetts."
Competitive labor market
The state's unemployment rate is quite low, at 2.7 percent. However, this has also led to stiff competition for top talent, driving up compensation costs. This means entrepreneurs have to move more quickly and offer more attractive compensation if they want to attract and retain skilled workers. Businesses can find some relief in catering to those who want to get a foot in the door in their respective industries, Mastroianni said.
"[The labor market] is competitive, but there are many individuals in New Hampshire who are willing to start at a lower pay grade in order to enter the industry that they desire to work in, and to get out of the big-box stores," he said.
The good news is that while unemployment has dropped, the labor force saw a sharp increase through much of 2016. So, New Hampshire still boasts more available workers than it had in years prior. And luckily, half of New Hampshire has easy access to out-of-state labor markets, Lawrence added.
"The labor supply is currently tight due to the low unemployment rate," he said. "[However,] there is an adequate mix of skills available in the labor supply, and southern New Hampshire can draw on an additional labor pool from northern Massachusetts."
Resources for small businesses in New Hampshire
Here are a few organizations for small business owners in New Hampshire looking for resources to help in moving forward:
New Hampshire SCORE
SCORE's volunteer business professionals and expert mentors give counsel and guidance to entrepreneurs who are looking to start or expand their businesses. The services are entirely free and volunteer-driven. Here are some of the chapters in New Hampshire:
U.S. Small Business Administration District Offices
The U.S. Small Business Administration (SBA) offers financing and grants, as well as consultations and counseling services. You can also apply for federal government contracts through the SBA and obtain assistance after natural disasters.
New Hampshire Small Business Development Center (SBDC)
New Hampshire's SBDC is a statewide network supporting entrepreneurs and business owners. Each center offers no-cost, confidential business consulting and targeted educational programs to help improve and grow small and emerging companies in the state. You can find your region's small business development center via the link below.